While the income picture for the 2011 corn production season certainly is looking rosier than at this time last year, costs will rise on some inputs and credit availability will continue to be a concern as banks tighten their lending limits and terms.
Most economists are predicting interest rates will rise this year as banks seek to reduce the risks associated with loans and to offset losses from other sectors.
Demand and price look good for as far as the eye can see, with corn disappearance for the 2010/11 marketing year projected to exceed production by 890 million bushels which will cut stocks by more than half to 827 million bushels of carryover, 6.2 percent of total use.
Prices are expected to average higher than in the past two years, with the early forecasted price range by USDA for the 2010/11 corn marketing season set at $4.80 to $5.60 per bushel. Prices are on the rise due to concerns for a shortage next year and even possible price rationing to slow demand.
But as producers know all too well, price and demand aren’t the only factors to be considered in budgeting for a new crop year.
Looking at the University of Georgia corn enterprise budgets for 2011, Extension Economist Nathan Smith says variable costs are expected to increase by 13 percent this year for dryland corn and by 14 percent for irrigated corn. These increases, says Smith, are due primarily to higher fertilizer prices, crop insurance and fuel prices. Seed costs, he adds, are expected to remain the same for most varieties.
Smith discussed the 2011 corn budgets during the recent Georgia Corn Short Course held in Tifton, Ga.
Taking each line of the budget separately, beginning with seed, fertilizer and chemicals, he says seed costs are projected to remain flat in 2011. However, the range for price might widen as newly introduced varieties will have higher prices. Cost per bag for corn seed likely will range from between $190 to $265 per bag, depending on the variety and technology.
Fertilizer prices moving higher
Fertilizer prices are moving up with higher petroleum prices, he says. A major factor that will determine fertilizer prices in the spring will be how much corn acres increase. A large increase in corn will push up fertilizer prices. Nitrogen was priced in the mid-50-cent range per pound of nutrient at the end of 2010. Phosphorus is estimated at 45 cents per pound of nutrient. Potash is estimated to remain at about 50 cents per pound.
Chemical costs in general have been on the rise but is offset in the corn enterprise budgets by the lower price of atrazine.
Moving to the cost of borrowed funds entry, Smith says the interest rate charged in the corn budgets is dependent upon what lending institutions pay for funds they lend. Most loans are based on the prime rate plus 1 to 3 percent. The prime lending rate was 3.25 percent in late 2010 and farmers in good financial standing should be able to qualify for a lower rate. The rate used for 2011 is 6.5 percent which is higher than using the usual rule of thumb.
“Banks, however, are widening the margin on interest rates to adjust for risk in the current economic environment and to offset losses from other sectors. Credit availability could be a concern for growers as lenders will likely tighten limits and look to greater utilization of FSA-guaranteed loans,” says Smith.
As for fuel and energy costs, energy prices have been rising, especially with early cold weather in 2010. Fuel and oil prices are expected to rise moderately in 2011 as demand slowly grows. The 2011 budgeted price is $2.85 per gallon versus $2.50 in the December 2009 budget. The irrigated corn budget charges an average of $10 per acre inch of water reflecting a 50/50 ratio of diesel and electric power sources.
Moving to the labor and repairs budget category, operator labor rates remain at $11.25 per hour in the 2011 budget while machinery repairs are increased reflecting the higher cost of equipment and parts, according to Smith.
For the all-important breakeven yield and price budget entry, at the budgeted yield, non-irrigated corn requires $3.52 per bushel to cover variable costs and irrigated corn requires $3.18 per bushel to cover variable costs. In order to cover all costs except for land, the breakeven price is $4.53 per bushel for non-irrigated corn and $4.39 per bushel for irrigated corn.
For a complete listing of the University of Georgia enterprise budgets for corn and other crops, including cotton, grain sorghum, peanuts and soybeans, go to http://www.caes.uga.edu/?tiny=TY3II9. The 2011 Crop Comparison Tool can be found at http://www.caes.uga.edu/?tiny=JLBBTR.